In a serious setback, the Indian authorities has misplaced a world arbitration case to vitality big Cairn Plc over the retrospective levy of taxes, and has been requested to pay damages price $1.2 billion (Rs 8,842 crore) to the UK agency. The decision got here on Tuesday night time, barely three months after India misplaced arbitration to Vodafone Plc over the retrospective tax laws modification.
The Everlasting Court docket of Arbitration at The Hague has maintained that the Cairn tax challenge is just not a tax dispute however a tax-related funding dispute and, therefore, it falls underneath its jurisdiction. India’s demand in previous taxes, it stated, was in breach of honest therapy underneath the UK-India Bilateral Funding Treaty.
The case pertains to the Rs 24,500-crore tax demand on capital good points made by the oil main within the reorganisation of its India enterprise in 2006-07.
The damages awarded to Cairn embody the shares connected by the income-tax (I-T) division in January 2014 and bought in 2018 to partially get well the tax dues. Cairn Energy had held a 4.95 per cent stake in mining main Vedanta Ltd which the I-T division connected after issuing tax demand to the British agency in 2014. The federal government has been requested to pay damages on the share worth of Rs 330 as of 2014, as a substitute of Rs 220-240 apiece on which it was really bought by the I-T division in 2018 in tranches. The compensation additionally contains Rs 1,590 crore in tax refund because of the British firm, moreover the authorized charges.
The decision has additionally famous the argument by the Edinburgh-based firm, that the tax demand got here up after the Vodafone tax case, which was quashed by Indian courts.
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Reacting to the order, the federal government in a press release stated it might be finding out the award and all its features fastidiously in session with its counsel. “After such consultations, the federal government will think about all choices and take a call on additional plan of action, together with authorized cures earlier than applicable fora,” it stated.
The tribunal’s order has additionally taken observe of arguments and statements made by Bharatiya Janata Social gathering leaders, whereas in opposition, over the retrospective tax amendments and worldwide disputes, with senior leaders like Arun Jaitley calling it “tax terrorism”.
Cairn Plc stated the tribunal established to rule on its declare towards the federal government of India and in its favour. Cairn’s declare was introduced underneath the phrases of the UK-India Bilateral Funding Treaty, the authorized seat of the tribunal was the Netherlands, and the proceedings had been underneath the registry of the Everlasting Court docket of Arbitration.
The tax demand by India was in respect of Cairn UK transferring shares of Cairn India Holdings to Cairn India as a part of an inside group reorganisation in 2006-07. This gave rise to completely different interpretations on whether or not the UK-based firm made capital good points, previous an preliminary public providing (IPO) of shares by Cairn India. The I-T division had contended that Cairn UK made capital good points of Rs 24,503.5 crore. Earlier than the Cairn India IPO, the India operations of Cairn Energy had been owned by an organization known as Cairn India Holdings-Cayman Island and its subsidiaries. Cairn India Holdings was a completely owned subsidiary of Cairn UK Holdings, in flip a completely owned subsidiary of Cairn Energy.
On the time of the IPO, the possession of the India belongings was transferred from Cairn UK Holdings to a brand new firm, Cairn India. In 2006, Cairn India acquired your complete share capital of Cairn India Holdings from Cairn UK Holdings. In change, 69 per cent of the shares in Cairn India had been issued to Cairn UK Holdings. Therefore, Cairn Vitality, by means of Cairn UK Holdings, held 69 per cent in Cairn India.
Later, in 2011, Cairn Vitality bought Cairn India to mining billionaire Anil Agarwal’s Vedanta group, barring a minor stake of 9.8 per cent. It wished to promote the residual stake as effectively however was barred by the I-T division from doing so. The federal government additionally froze cost of dividend by Cairn India to Cairn Vitality.